The legal framework established by Act 399-2004, reinforced by ACT 60, places Puerto Rico as a premier international insurance center (IIC), offering a competitive environment for international insurers and reinsurers. This legal synergy allows these entities to insure and reinsure risks both in and outside Puerto Rico, benefiting from a favorable tax regime and a regulatory system that balances security and flexibility. We break down below the benefits and tax incentives available to entities operating under this scheme.
Operating Benefits Under Law 399 and ACT 60
Law 399 and ACT 60 provide a solid platform for innovation in risk management and access to international markets, including:
- Risk management strategies through captive insurers.
- Easing entry into Latin American or U.S. markets through reinsurers.
- Use of special vehicles to optimize integrated insurance plans.
- Corporate reorganization opportunities using international insurance holding companies.
- Implementation of segregated asset plans and securitization programs for greater financial flexibility.
Tax Incentives for the Insurance Industry
Entities relying on the benefits of Law 399 and ACT 60 enjoy a set of tax incentives to promote their competitiveness globally:
- Total Exemption on Premium Taxes: A crucial incentive eliminating the tax burden on premiums collected.
- Income Tax Exemption: 100% income tax exemption on dividends and other distributions made by the international insurer and its holding companies.
- Significant Property Tax Reductions: A 75% applicable exemption to real estate and personal property.
- Mitigation of Municipal Charges: 50% exemption on municipal taxes, easing the local operation.
- Tax Withholding Privileges: Full exemption on withholding taxes on dividend payments and profit sharing, improving cash flow for investors.
- Tax Insulation of Income: The income and profits of international insurers are exempt from income tax, thus providing a significant competitive advantage.
- Specific Exemptions for Protected Cell Companies: It includes a tax exemption of up to $1.2 million on net income at the individual cell and company level.
- Preferential Tax Rate: A 4% tax rate on net income, providing a highly favorable tax environment.
Conclusion
Law 399, jointly with ACT 60, places Puerto Rico as an attractive destination for the international insurance industry, offering a secure and flexible regulatory framework along with unprecedented tax benefits. These laws enable innovative risk management strategies and access to new markets and establish an environment conducive to the growth and development of insurers and reinsurers on the island. Along with these incentives, Puerto Rico stands out as an emerging financial hub in the insurance sector, attracting investment and promoting the expansion of this vital economic sector.